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Federated to Buy Mutual Funds Worth $14B From PNC Financial

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On Tuesday, Federated Investors Inc. (FII - Free Report) and PNC Financial (PNC - Free Report) entered into a deal, under which the former will acquire certain components of PNC Capital Advisors LLC's (PCA) investment-management business for about $52 million. Under the agreement, liquidity, equity and fixed-income mutual funds of PNC Financial will be reorganized into respective Federated mutual funds.

Further, a portion of PNC Financial's separate account and separately managed account business will be transitioned into Federated, along with a six-person international equity management team. Increased assets under management furnish Federated with various new fund offerings that would benefit its clients.

Closure of the deal awaits completion of certain regulatory and other customary conditions. Moreover, the transaction is expected to close in the fourth quarter of 2019.

Terms of the Deal

Under the agreement, Federated, one of the largest investment managers, will reorganize assets worth $9 billion from three PNC government and treasury money-market funds. Furthermore, equity mutual fund assets worth $2.7 billion and fixed-income mutual fund assets worth $700 million will likely be transitioned from 15 PNC Financial funds into 10 current and three newly-created Federated funds. Remarkably, the acquired assets to be merged into Federated’s existing funds possess the same investment objectives.

Notably, for transitioning the investment assets associated with the deal, existing PCA's equity, structured equity and international separate account, along with separately-managed account clients with assets worth around $1.5 billion, will be persuaded to move to Federated.

For quite some time, Federated has been working with different banks to offer investment products catering to the needs of the clients. Therefore, the company’s experience, along with its proficiency in providing customer service, will be opportunistic for PNC Financial funds’ shareholders. Moreover, the deal’s completion will enable the shareholders to access a wider array of investment products. Federated is looking forward to many such opportunities in order to provide the best services to its clients.

"We are pleased to be working with PNC on this transaction," said J. Christopher Donahue, president and CEO of Federated Investors, Inc. "Federated is committed to helping PNC's clients reach their financial goals by providing solid product performance, a range of compelling investment solutions and superior client service," Donahue further added.

Our Viewpoint

We remain encouraged by Federated’s strategic deals. Under the prevailing pressure in the industry due to stringent regulations and competition, acquiring investment-management assets suggests buoyancy of the company in the money market funds business.

Notably, the aforementioned deal comes after Federated concluded the deal with BT Pension Scheme (BTPS) in July 2018, under which the company has acquired majority interest in London-based Hermes Fund Managers Limited — operating as Hermes Investment Management — a pioneer of integrated ESG investing. The deal was funded through a combination of cash and revolving credit facility by Federated. The company has acquired 60% stake in Hermes from BTPS for £246 million (about $350 million).

Federated currently carries a Zacks Rank #3 (Hold). Shares of Federated have gained around 15.7% in the past three months, outperforming the industry’s growth of 9.5%.

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